Smokestacks stand at a coal-fired thermal power station at night in India.  (Photographer: Prashanth Vishwanathan/Bloomberg)

Finance Ministry May Consult RBI Soon To Resolve Power Sector’s Problems

The Finance Ministry may soon hold talks with the Reserve Bank of India to resolve issues faced by the power sector and seek some relaxation of the Feb. 12 non-performing assets guidelines, sources said.

The ministry would consult the RBI as per the Allahabad High Court order on Monday, which refused to give any interim relief to private power companies from the RBI’s February circular. Eight or nine commissioned power projects will be impacted by the Allahabad High Court order and banks have mostly provided for these stressed projects, according to sources.

The RBI on Feb. 12 abolished half a dozen loan restructuring schemes in a bid to hasten the resolution of bad loans. Instead, it provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Also read: Will The Government Invoke A Rare Provision To Sidestep RBI’s Feb. 12 Circular?

The Finance Ministry can consult RBI as per the provisions of Section 7 of The Reserve Bank of India Act, 1934. As per the Act “the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest”.

North Block could ask the RBI to provide 180 days for resolution of stressed power projects with a view to avoiding potential value erosion of operating plants. Banks would get about a year for restructuring their power sector loans of about Rs 1.74 lakh crore if suggestions are accepted.

The High Court on May 31 had stayed the Feb. 12 RBI circular on companies other than wilful defaulters and directed the Finance Ministry to hold a meeting of all stakeholders on resolutions.

A meeting chaired by Financial Services Secretary Rajiv Kumar with all stakeholders was convened on June 22 acting on the direction. A report was prepared and sent to the Power Ministry for further action as per the Court order on the basis on meeting.

The report pointed out that the commissioned power plants with capacity of about 40,000 MW needs to be considered differently to avoid potential value erosion and unreasonable haircut for banks that may happen otherwise, according to sources. Similar recommendations were made by Standing Committee on Energy earlier in March.

Also read: SBI Says RBI’s New Framework Won’t Cause A Spurt In Accounts Referred To NCLT